Video games industry in China and cross cultural gaming

The Chinese video games market, the second in the world, is highly specific: tailored for the local culture prevalent piracy and lack of consoles. These features restrict the access for western companies and at the same time hinder the export of Chinese games. An analysis of the phenomenon.

Moreover, mobile is expected to grow by 50% year on year until 2015 reaching 455 million gamers. Indeed, the consultancy Newzoo describes China as “Asia’s rising star” for mobile gaming with revenues increasing from US $ 2.3 billion in 2013 to 4.25 billion in 2014 (an 86% increase), becoming the third largest games market by revenues for mobile games behind Japan (1st) and the US (2nd ).

US and Japanese companies continue to dominate, in 2012, the global market with nine out of 20 among the top companies (by game revenues) for the US and seven for Japan, but new companies are climbing up reflecting changes in the global market: among them two Chinese companies, Tencent and NetEase, have very high growth rates of revenues: 40% and 22%: 2011-2012, 40% again for Tencent 2013-2014 but only 9% for NetEase. During the 1st semester of 2013, Tencent became n°1.

.As a consequence, China is witnessing considerable changes in its games market.

China is therefore witnessing a major change of the video games market. The Chinese market is highly specific: western games are not very widespread but piracy is widespread, besides some aspects of the Chinese culture make it difficult for foreign companies to enter the market. These cultural features are also a barrier to the expansion of Chinese companies on other markets.

Asian games

As noted by Joe Chwen[+]NoteJoe CHWEN «Digital Games Localization Model and a Case Study in China» [6] in 2003, the Chinese market was characterized by “Koreanization” with more than 70% digital games in China from South Korea. Within the Top 10 game ranking for that same year: 80% were Asian games, 50% Korean games, and very few from western countries, with U.S. being the only one in the ranking with “World of Warcraft”. Lineage, and Ro, two of the most popular games in 2003 were both from Korea. It is worth noting that Tencent took off with the release of popular Korean PC games in Chinalike CrossFire and Dungeon and Fighter.

After a depression in the South Korean games market in 2006-2007, the Chinese market became the most important market providing 26.7% of export revenues in 2008 (with nearly 70% for South Asia)[+]NoteChina is also the most important market for South Korean films: in 2010 it accounted for 40% of the Asia Pacific film exports. the region provides the largest share of the revenues. For broadcasting exports Japan still held the first rank. On the opposite, films from China accounted for only 0.4% of the imports in 2011.[7]. South Korean online games achieved roughly 50% of market share in China, Japan and Southeast Asia and a total market share of 36.5% in 2007[+]NoteWI, Jong H, Innovation and Strategy of Online Games, Imperial College Press, 2009, p ;139.[8]. The games industry is the second largest content industry of Korea after the book publishing industry (with twice the size of the cinema industry in 2012)[+]NoteKOCCA. The government agency KOCCA provides “support for creation and production of Korean contents that have potential to succeed in strategic markets (e.g., U.S.A., China)”. [9] but is by far the largest provider of export revenues (30% of the sales). The characters, appearances, and game rules are familiar to people in the East Asian region. Taiwan was another leading exporter of games.

Chinese consumers are spending all of their time and money on Chinese Internet platforms A decade after, what is striking is that Chinese consumers are spending almost all of their time and money on Chinese Internet platforms. Baidu[+]NoteBaidu.com is the largest Chinese website and the fifth website globally.[10] is predominantly used by China’s Internet consumers. Despite a few global games that rank among China’s most popular, local games (domestically developed games) represented now up to 57% of the sales[+]NoteIn 2014, local films accounted for 55% of the box office revenues . As of June 2014, domestic movies accounted four out of 10 of the highest-grossing mainland movies. [11]. Client games (role playing games and casual competitive games) are by far the biggest segment (with Tencent and Netease dominating the segment with respectively 49.2% and 16.3% in 2013), followed by web games[+]NoteWeb-based games are games that players can easily access and play via the Web without downloading and installing any software.[12] and mobile games. PC-based MMORPG[+]NoteMassively multiplayer online role-playing game.[13]and FPS[+]NoteFirst person shooter.[14] games dominate in terms of revenues they produce. The most popular of these games like “Crossfire”[+]NoteFrom the South Korean company, Smilegate, one of the most successful players in the Korean online gaming industry. Crossfire is the world’s highest grossing online game with revenues of over US$1 billion in 2012 and 2013. The revenues are coming mostly from micro-transactions. The game, owned by SmileGate, is published by Tencent.[15] and “Blade & Soul”[+]NoteA fantasy game developed by Korea’s NCSoft, released in 2012 in Korea, and launched in 2013 in China.[16] are still South Korean games.

Top ten PC-based games in China. 2014 and by country of origin: again with 50% from China, 30% from South Korea and 20% from the US. Action role playing games (RPG) were indeed the most favoured genre, led by PC-based gamers in 2014.

Early 2000s with the development of Internet in China, some first movers introduced foreign online games and operated them in China through some type of agent/intermediary. Such an operating model without Research and Development (R&D) in China helped diversify the game market in China and saved some costs. With the experience and capital, the Chinese company began developing games by themselves, though the videogame R&D consisted mostly in copying foreign games structure and adding some Chinese traditional features.

Indeed, this increase of locally produced games is also grounded in the specificity of Chinese culture. Thomas Price stresses that the “endless sea of made-in-China Three Kingdoms games”, is hard to avoid. The historical period (CE 220–280), has been greatly romanticized in the cultures of China, Japan, Korea, and Vietnam. It has been celebrated and popularized in operas, folk stories, novels and in more recent times, films, television, and video games. The best known of these is Luo Guanzhong's “Romance of the Three Kingdoms”, a Ming dynasty historical novel based on events in the Three Kingdoms period detailing a fictionalized account of the real historical Three Kingdoms period. The movie shot in 2008 by John Woo became the top selling success of the Chinese box office in the history of Chinese cinema.

Uncountable games, including multiple top MOBAs[+]NoteMultiplayer online battle arena[18], all draw from the seemingly-infinite well that is the Three Kingdoms setting. These fictionalized historical characters are beyond household names at this point, they’re fictional celebrities. The setting is based around this Chinese literary classic. Charlie Custer describes it as The Illiad’s Trojan War meetsGame of Thrones, with a dash of Robin Hood and an old Jackie Chan film thrown in for good measure. A cast of hundreds of brave warriors, sly strategists, and vicious warlords guarantees a huge number of characters for any Three Kingdoms game to keep mining for years to come. Charlie Custer stresses that, “it seems almost as if “Three Kingdoms” is the default setting for any developer looking to make a game, virtually regardless of the genre”.

With some irony Charlie Custer lists just a few of these games[+]NoteAuthor’s note: giving his direct translation from Chinese[19]: The Killers of the ThreeKingdoms Killing, Hot Blood of the Three Kingdoms, Dream of the Three Kingdoms, Legends of the Three Kingdoms Heroes, Three Kingdoms Battle Records, Three Kingdoms RPG, Rise of the Heroes of the Three Kingdoms, Fantasy of the Will of the Three Kingdoms, Romance of the Three Kingdoms, Three Kingdoms Tactics, and Interstellar Three Kingdoms.

The most famous, “Dynasty Warriors” was introduced as a fighting game for the original Play station. Romance of the Three Kingdoms was launched in 1985 for the PC, as well as home consoles (the Amiga, NES, and MSX). Netease's Fantasy Westward Journey, one of the most popular MMORPG in China, is based on the 16th century Chinese classic Journey to the West. As we will see in a next section, the share of Western games has been growing, the relative share of South Korean games must have been shrinking accordingly (no data available). The share of the South Korean games in the Top ten PC-based games in China (3 out of 10) may not yield a relevant proxy of the effective share.

Highlighting the role of piracy, copying and counterfeited products for the growth of entire segments of the Chinese industry is a well-known critique of its growth model. Similar complaints are usually voiced about leniency in the application of IPR protection, although first after joining the WTO in 2001 (Permanent Mission of China[+]NoteChina claims having established a unified and transparent policy system consistent with WTO rules.[22] to the WTO, 2011), and with recent decisions about IPR policies (amending the Chinese Copyright Legislation they have been more and more signals in the opposite direction[+]NoteTAO, Qian, Legal framework of online intermediaries’liability in China”, Info, Vol. 14, n°6, p. 62, 2012.[23]. In 2006, China joined the WIPO[+]Note Six months before the Chinese State Council issued “Regulations on Protection of the Right of Communication through Information Networks”. TAO, Qian, Legal framework of online intermediaries liability in China”, Info, Vol. 14, n°6, 2012, p. 63). [24]Copyright treaty and WIPO Performances and Phonograph Treaty.

Building an industry from scratch is not an easy option, therefore these forms of piracies are attractive especially whenever the IPR regime is not properly implemented or is just totally ineffective. No wonder anyway, to find the phenomenon in the field of videogames. Dinowan ( gives an impressive list of the ways to copy well-known games starting with “Mario” or “Minnecraft”. The pattern of moving out of a “grey” zone toward more legal and standard business practice is not uncommon in other industries as it is clearly illustrated with the dramatic growth of Chinese patents over the last decade[+]NoteGiuditta DE PRATO, et Daniel NEPELSKI,«International technology transfer between China and the rest of the world». JRC Technical Report, 2013.[25]. For instance, in 2014 Tencent was among the top 50[+]NoteHuawei took top n°1 spot in patent filings. [26] applicants for applications under WIPO’s Patent Cooperation Treaty (PCT). Therefore, the first period of a strong reliance on various forms of piracies may be perceived as the output of an immature market.

Copying is acknowledged as a problem by the Chinese games industry itselfIndeed, copying is more and more acknowledged as a problem by the Chinese games industry itself[+]NoteSee for instance the forms (Annual Reports) sent to the US regulatory agency SEC by NetEase stressing the risk it brings to the industry.[27], as however attractive western games could be, as noted by Charlie Custer, if there a few instances in which Chinese developers copied Western games, the economic issue looms around the fact that “the vast majority of the copying is Chinese developers copying other Chinese developers”. Given the attractiveness of South Korean games for the cultural reasons stressed earlier, one can assume it should have been the case with these games. As a consequence, homogenization now is a common problem in the Chinese games industry which lacks differentiation and real innovation.

Besides it should be added that because of the role of piracy, Chinese game companies, just like South Korean games companies[+]NoteWI, Jong H, Innovation and Strategy of Online Games, Imperial College Press, 2009.[28] came up with innovative business strategies to circumvent the risk, hence the creation of the Free-to-Play that dominates by and large the Chinese market, in-games advertising, and the blooming market of virtual items. China is leading for social networking and online gaming[+]NoteWI, Jong H, Innovation and Strategy of Online Games, Imperial College Press, 2009. The Digital Entertainment Revolution , White Paper, IN1004828WHT, February 2010, (last accessed: 12 March 2010).In-Stat, Virtual Goods in Social Networking and Online Gaming .[29], Tencent is a pioneering company in that field. Free-to-Play games are still the “reigning kings of China’s PC market” with League of Legends, CrossFire, and Dungeon & Fighter , published by Tencent have been the top three most popular games in China in 2014.

In spite of the above, there are some innovations worth mentioning. Several game developers insist on developing traditional single-player Chinese Style RPG games. The most famous two games are Chinese Paladin[+]NoteOr The Legend of Sword and Fairy.[30] and Xuanyuan Sword[+]Note Literally "Sword of the Yellow Emperor", the games incorporate elements of Chinese mythology as well as historic figures and events.[31], developed by Softstar Technology[+]NoteA Beijing-based company.[32]. Both have a twenty years history, and a series of over ten games. Their strength is not the technology or 3D effects, but rather the moving stories about love among friends, races[+]NoteAs defined within the games.[33] or countries and Chinese traditional culture. In addition, in recent years, these two Chinese games (with others) have introduced several new strategies: turning some of their classical games into TV series (it has proven to be a big success); partnering with leading online game developer and operator like Changyou[+]NoteThird on-line game company behind Tencent and NetEase.[34], and finding new ways to guarantee the real revenue of the game by requiring players to pay for the key to unlock the game online, the first time they play (although the games do not require the Internet).

Go West or stay East?

China’s game industry seems having trouble producing a hit outsideThe features described in the previous section clearly show what Charlie.Custer calls the “insularity” of Chinese games pointing at games like Jianxia Qingyuan 3, Demi-Gods and Semi Devils with millions of players in China, but that are not available outside the country. Besides, China’s game industry seems having trouble producing a hit outside. The only example is Zynga’s celebrated Farmville, a copycat of the Chinese game Happy Farm. Many Japanese, Korean and specifically Chinese games companies have had mixed success in trying to conquer the West. Many have since shifted their attention to countries in Southeast Asia that are closer in terms of geography and (game) culture. Game companies from China, Japan and South Korea entered these markets by establishing subsidiaries or licensing game products to local partners. In December 2014, Asian content heavy role playing or strategy games like Summoners War[+]NoteA game published by Com2us, a South Korean company. [35] , Dot Arena[+]NotePublished by the Beijing-based FunPlus Group , the creator of mobile-social games like Family Farm. In 2014, it sold its game subsidiary to publicly traded Chinese Zhongji Holding for $960 million.[36] and Castle Clash[+]Note Released by IGG , headquartered in Singapore with regional offices in the United States, China, Canada, Japan, Korea, Thailand and the Philippines. Most of the development personnel are based in China to tap the large talent pool there and to leverage cost advantages. [37]took 5 of the top 10 spots by revenue in Malaysia, 4 in Thailand, and 6 in Vietnam.

The other side of this “insularity” is the lack of attractiveness so far of the Chinese market for Western companies taking into account various parameters (privacy, unfriendly regulations, lack of expertise…). Clearly the lack of sufficient IPR protection acted as a barrier as companies may not be willing to invest in costly translation, localisation if the revenues are likely to escape them. Besides expertise to that end is rare and expensive.

Piracy is not the only issue together with these costs, other elements are important in the Chinese environment such as online payment methods that have been developed by the major platforms providers (AliBaba, Baidu) and games companies (NetEase, Tencent). Foreign companies are not familiar with this environment and do not usually provide similar options. Games need to be integrated within the Chinese app stores and social media networks. Monetization is therefore an issue for them. However, monetization can be achieved by a combination of working with a respected local partner, integrating in-game spending models and localizing the game in Chinese.

This is what is happening. Partnerships have been developing fast these recent years, new alliances are blooming, deals being inked: Tencent is publishing Candy Crush in China, rolling out on Tencent’s Mobile QQ and Weixin mobile messaging platforms (Weixin, has more than 200 million active users in China), in November 2014, Blizzard Entertainment and NetEase, announced the launch of World of Warcraft and Warlords of Draenor[+]Note Official website [38]in mainland China. Supercell’s decision to partner with Kunlun to distribute Boom Beach in China has been hailed as a huge success, same with Minecraft. Rovio, the maker of Angry Birds, has announced a game development and publishing partnership with Kunlun as well, offering localised content. Ubisoft have a studio based in China, Ubisoft Shanghai (who worked on Far Cry 3), and another in Chengdu (involved in Assassin’s Creed). On the manufacturer side, Apple is wooing more developers in China, so as to replicate its ecosystem of games. Microsoft[+]NoteMicrosoft Research Asia was founded in 1998 in Beijing. Fabrizio GAGLIARDI, “Microsoft Research in Asia: Tapping into a Great Potential”. Presentation at the EC JRC IPTS conference "ASIAN RISE IN ICT R&D –« Looking for evidence: Debating collaboration strategies, threats and opportunities », 2011.[39] has labs in Beijing which were involved in the creation of the Xbox.

To accompany the entry of Western companies, new intermediaries which focuses exclusively on helping foreign firms localize and publish their mobile games in the Chinese market: like Yodo1, iDreamsky, or Oniix are developing fast. Yodo1 is also expanding to Japan and South Korea[+]NoteThe firm already opened up a development studio in Seoul.[40] the biggest markets in the world by revenue for Google Play developers.

Despite the difficulties we just stressed of reaching Western markets, Internet firms, Alibaba, Baidu, and Tencent[+]NoteThe three firms are often referred to as BAT in the trade press.[41], have been making recent moves outside their home market, looking for new growth opportunities. In 2011 Tencent acquired a major stake in the US company Riot Games (League of Legends) and in 2012 approximately 48.4% of US Epic Games (Gears of War). After establishing offices in South Asia, NetEase opened up, in 2015, a US office, with plans to expand their offerings by releasing mobile games for Western audiencesto bring “culturalized” versions of their successful Chinese games. Its first game for these markets, Speedy Ninja[+]NoteSpeedy Ninja is the sequel to Ninja Must Die from pandadastudio which apparently reached some critical acclaim overseas. Pandadastudio was founded in December 2011 in Hangzhou, China and have produced three successful titles including Ninja Must Die and 2012: The End Escape securing over 18 million downloads.[42],is anticipated to launch on iPhone, iPad, iPod Touch and Android devices as a free game in the summer of 2015.

The future of the Chinese video games industry

These movements and strategies can be anticipated taking into account the growing role of the Chinese games market and the prominent role of its leading companies. It is far too early to predict the outcome of these strategies, to forecast the share that will be left to Western games in a more “open” market, or the share these companies will achieve outside their protected domestic market.

Nevertheless, , China is becoming a major hub for game software development although it has to go over some limitation coming from an imitation-based culture and some lack of originality. Since the early 2000 the Chinese government has been pushing in that direction so as to create an improved environment, for instance with training programmes for developers. Online gaming is a remarkable example of an industry that is rapidly growing thanks to innovative business models of Chinese companies, even if these models have been adopted to deal with the issues they were facing.

There is some good reasons to believe that patterns of growth and learning experiences already found in the IT and telecom industries, with fast growing companies like Huawei, ZTE and some amazing start-ups like Xioami could also occur in the video games industry. Even if there is no mechanical triggering effect between the mere size of the market and of the companies and the results they may achieve, the remarkable achievements of companies like Tencent already indicate that the Chines games companies may go beyond the mere replication of existing well established schemes and start innovating.

The author would like to thank Claudio Feijoo (Technical University of Madrid/ Co-Director at Sino-Spanish Campus, Tongji University, Shanghai) and his team of students (Iris Queudot et Alex Zhu) for their comments.

5. Still as noted by Charlie Custer, Chinese net cafe gamers played 30 billion minutes of multiplayer online battle arena (MOBA) games in July 2014. Some cafes are illegal.

6. Joe CHWEN «Digital Games Localization Model and a Case Study in China»

7. China is also the most important market for South Korean films: in 2010 it accounted for 40% of the Asia Pacific film exports. the region provides the largest share of the revenues. For broadcasting exports Japan still held the first rank. On the opposite, films from China accounted for only 0.4% of the imports in 2011.

12. Web-based games are games that players can easily access and play via the Web without downloading and installing any software.

13. Massively multiplayer online role-playing game.

14. First person shooter.

15. From the South Korean company, Smilegate, one of the most successful players in the Korean online gaming industry. Crossfire is the world’s highest grossing online game with revenues of over US$1 billion in 2012 and 2013. The revenues are coming mostly from micro-transactions. The game, owned by SmileGate, is published by Tencent.

16. A fantasy game developed by Korea’s NCSoft, released in 2012 in Korea, and launched in 2013 in China.

24. Six months before the Chinese State Council issued “Regulations on Protection of the Right of Communication through Information Networks”. TAO, Qian, Legal framework of online intermediaries liability in China”, Info, Vol. 14, n°6, 2012, p. 63).

36. Published by the Beijing-based FunPlus Group , the creator of mobile-social games like Family Farm. In 2014, it sold its game subsidiary to publicly traded Chinese Zhongji Holding for $960 million.

37. Released by IGG , headquartered in Singapore with regional offices in the United States, China, Canada, Japan, Korea, Thailand and the Philippines. Most of the development personnel are based in China to tap the large talent pool there and to leverage cost advantages.

39. Microsoft Research Asia was founded in 1998 in Beijing. Fabrizio GAGLIARDI, “Microsoft Research in Asia: Tapping into a Great Potential”. Presentation at the EC JRC IPTS conference "ASIAN RISE IN ICT R&D –« Looking for evidence: Debating collaboration strategies, threats and opportunities », 2011.

40. The firm already opened up a development studio in Seoul.

41. The three firms are often referred to as BAT in the trade press.

42. Speedy Ninja is the sequel to Ninja Must Die from pandadastudio which apparently reached some critical acclaim overseas. Pandadastudio was founded in December 2011 in Hangzhou, China and have produced three successful titles including Ninja Must Die and 2012: The End Escape securing over 18 million downloads.